Business Regulations Related to Mainland Companies
The UAE Federal Law No. 2 of 2015 on Commercial Companies , as amended applies on any economic entity which practice any commercial, financial, industrial, agricultural, real estate or other kinds of economic activity on the mainland except the following: Click here to view the list
Establishing LLC Business in the UAE
Investors can establish their own businesses in the UAE within a very short time. However, establishing a conventional business in various emirates of the UAE by the conventional means requires a series of procedures and approvals from the Department of Economic Development and the other concerned authorities for official registration of the entity.
Key Changes Introduced by the New Companies Law - Limited Liability Companies
General Assembly Meetings
- A person who is not a manager may act as a proxy for a shareholder at a general assembly meeting.
- The notice period to convene a general assembly is now a minimum of twenty-one (21) days (previously, fifteen (15) days under the Old Companies Law).
- When a properly called meeting is inquorate and a second meeting is called, there will be no quorum requirement of the second meeting and the meeting shall be deemed validly constituted, notwithstanding the provisions of the respective company’s memorandum of association.
Memorandum of Association
The Memorandum of Association must explicitly set out alternative dispute resolution methods to resolve any company business related disputes which may arise between the company and any of its shareholders, directors or managers.
Where a manager has not yet been replaced at the end of their term, such term may be extended by a maximum of six (6) months, pending the appointment of a new manager.
The statutory reserves, made up from net profits, have now been reduced from ten percent (10%) to five percent (5%); the New Companies Law provides that shareholders can stop this allocation if the legal reserve of fifty percent (50%) of the share capital is met.
Expiration of the Board of Managers’ Term
If the term of the Board of Managers expires, and a new Board of Managers is not appointed, the existing board will continue to manage the LLC for a period of six (6) months, following which a new board must be appointed by the LLC. If the LLC fails to do so, the Department of Economic Development can step in and appoint a board for a maximum of one (1) year, during which the LLC must appoint a new Board of Managers. Therefore, the appointment of the Board of Managers by the DED is a substitute arrangement that will be regularized if the LLC fails to appoint the board itself.
Appointment of the Supervisory Board
Where an LLC consists of more than fifteen (15) shareholders (previously seven (7)), they must appoint a Supervisory Board consisting of a minimum of three (3) shareholders to supervise the company’s annual reports, budgets distribution of profits and to also supervise the LLC management and submit a report to the General Assembly in this respect.
PUBLIC JOINT STOCK COMPANIES
Replacement of a Director
If the director departs prior to the expiry of their term, the board is entitled to appoint a replacement director within thirty (30) days, who shall be presented to the General Assembly in its first meeting to approve the appointment or to appoint another individual. If approved, the new director will complete the remaining term of the previous director. In case the Board defaults in appointing a director during the period provided, the Board must then convene an election to appoint a new director in the General Assembly’s first meeting, and the newly elected director shall hold the position for the remaining term of the predecessor.
This is limited to a maximum of ten percent (10%) of the net profits of the fiscal year (after depreciation and reserve deductions have taken place). In the event the company has not generated profits for that year, notwithstanding the company’s constitutional documents and approval of the General Assembly, a board member may be paid a lump sum fee not exceeding AED 200,000 at the end of the fiscal year.
Amendments to the Requirements for Contribution by the Founders
The New Companies Law has removed the minimum and maximum percentages of the capital to which the founders of a PJSC may subscribe to new shares upon public offering. Whereas, previously, the founders were required to subscribe to a minimum of 30% and a maximum of 70% prior to the invitation to the public subscription – instead, they may now subscribe to new shares up to the percentage specified in the prospectus and subject to the requirements of the SCA (whereas previously UAE Council of Ministers approval would be required for an exemption to the minimum 30% offering size).
Amendments to the Requirements for Conversion to a PJSC
The New Companies Law no longer requires a 10% net operational profits test within the two financial years preceding the application for conversion.
Sale of Part of the Shares of the PJSC upon its Conversion
The New Companies Law no longer sets a maximum limit on the percentage of shares that can be offered for sale upon conversion from a private joint stock company to a PJSC (the maximum limit on a sale of shares was set at 70% under the Old Companies Law). Now the percentage/ratio of sale shares and new shares being offered as part of an IPO on conversion is to be determined by the SCA.
Founders’ lock-up period in a PJSC
The New Companies Law has also removed the restrictions on founders of a PJSC from trading their shares once the converted company is listed.
Amendments to the Offering Subscription Period
There is no longer a statutory minimum period for the public to subscribe for shares in the IPO (10 days in the Old Companies Law), and refers to the period specified in the prospectus which may not exceed 30 business days. The subscription period for the offering may be extended for an additional period on application to the SCA, however, not exceeding the longstop date set out in the prospectus. This amends the strict position under the Old Companies Law, which limited any extension to 10 business days.
The founders of a PJSC may subscribe for any unsubscribed shares in the offering upon the expiry of the subscription period, but subject to the requirements of SCA. Previously, the founders were only allowed to subscribe for up to 70% of the shares and in the event that there remained any unsubscribed shares, then the incorporation of the PJSC would be revoked.
Further, the New Companies Law removes the restrictions on the founders of a PJSC from trading their shares once the converted company is listed.
Ability to Issue Discounted Shares
Subject to SCA approval and the passing of a special resolution, a PSJC is now permitted to issue shares at a discount in instances where the market price of the shares falls below the nominal value.
Nominal Value of Shares
A PJSC can now specify the value of its shares (thereby no longer restricted from being a minimum AED 1 and a maximum of AED 100). The nominal value of shares is now simply as set out in the Articles of Association.
Corporate Social Responsibility (CSR)
The New Companies Law allows newly established companies to provide CSR and to reserve any profits for such cause. This removes the limitation prescribed by the 2020 amendments that only allowed a PJSC to contribute to CSR if it had been established for at least two financial years with an upper limit contribution of two percent (2%) of the average profits for the last two financial years. Further, the New Companies Law mandates public disclosure on a company’s website even if it does not contribute to CSR, which was not required under the 2020 amendments.
Benefits of LLC Company Formation
- Permits you to do local trade and services
- The most convenient form of establishing a commercial company in the UAE
- Wide access to the UAE market
- No minimum capital required
- Investor is able to setup branches in any emirate
- Local partner (if you choose business that mandate local partner) is not involved in day to day business activities
- Easy to open bank account
- Get warehouse and office facilities
Requirements for LLC Company Registration
- Passport copy of foreign investor
- Passport copy of local sponsor
- No objection certificate if shareholder is UAE residence
- Copy of the Emirates ID
- Application for DED license
- Trade name reservation
- Copy of the passport of local sponsor along with the family book
- Copy of DED initial approval
- Copy of submitted documents for initial approval
- Office lease agreement and Ejari
- MOA signed and notary attested
What BACT Consultation Offers
- Documents preparation and submission to the local authorities
- Getting approvals and clearance from concerned departments
- Preparing and proceeding Memorandum of Association
- Arranging the local UAE partner
- Bank account opening assistance
- Residence visa consulting
- Office premises arranging